LIVE MARKETS-High equity valuations no impediment to further gains - UBS
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HIGH EQUITY VALUATIONS NO IMPEDIMENT TO FURTHER GAINS - UBS
There are many uncertainties for investors to grapple with as 2025 kicks ofF, and one that UBS equity strategists have picked up are higher-than-average equity valuations.
"The S&P 500 forward price-to-earnings ratio now stands at 21.5x, a step above both 10- and 20-year averages of around 18x and 16x, respectively," writes CIO Mark Haefele, global wealth management CIO in a daily note.
But his team doesn't think this is necessarily an impediment to further gains in the year ahead.
Why?
Firstly, high valuations are reflective of a positive macro backdrop.
"In our base case of continued stable economic growth, declining inflation and Fed rates, and continued AI-related investment spending, we believe supportive macro conditions will remain well into 2025."
Secondly, UBS says valuations and returns aren’t always tightly linked, proven by historical data going back to 1985.
"...stocks typically don’t fall simply because valuations are high. Instead, stocks tend to fall when corporate profit growth disappoints," writes the CIO.
A better gauge on direction may be changes in earnings expectations, specifically a tighter correlation can be found between changes in bottom-up forward EPS estimates and share returns in the next 12 months that follow.
UBS sees forward earnings expectations continuing to rise and this tends to correspond with periods where stocks rise.
"...we expect the bull market to continue with the S&P 500 reaching 6,600 by the end of the year, primarily driven by healthy profit growth of 9%".
The S&P 500 .SPX closed Monday at 5,975.38.
(Lucy Raitano)
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TUESDAY'S OTHER LIVE MARKETS POSTS:
GOING FOR GOLD CLICK HERE
SPORTSWEAR SECTOR'S CYCLICAL DOWN-CYCLE IS ENDING - BOFA CLICK HERE
DON'T SELL EUROPEAN AUTOS WHEN SENTIMENT IS AT A TROUGH CLICK HERE
EUROPEAN SHARES MIXED CLICK HERE
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